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Gold prices on the move!

There is good reason to be cautious on gold. Yet, longer term, the positive outlook remains intact as central banks keep a lid on interest rates.

Recently, the gold price god was penalized by higher real interest on the back of the Fed’s hawkish shift. One can expect that US long-term real rates will continue to rise in the coming months, mostly due to a less accommodative Fed and strong US economic activity. We expect that the FED will provide clarity at the Jackson Hole Symposium in late August about the tapering of the QE programme. This, together with a strong USD, could be negative for gold prices.

Beyond investment demand, seasonal and price-sensitive jewelry demand may provide little support for gold in the summer months, although the reopening of major economies may mitigate the seasonality of jewelry demand this year. We estimate that the present fair-value of gold is somewhere between USD 1’700/ounce and USD 1’750/ounce. As real interest rates will stay low for a prolonged period of time, which is supportive for safe-haven assets, the 12-month target price for gold is around USD 1’850/ounce.